A small but growing number of European businesses and pension funds have begun to drop investments or limit trade with Israeli firms involved in West Bank settlements.

At a security conference in Germany this weekend, Kerry warned that if Israeli-Palestinian peace talks break down, this trend will intensify. He said the status quo is not sustainable and that without peace Israel's continued economic prosperity and security was "illusionary."

Bennett, from the religious, pro-settler Jewish Home party, has been a fierce critic of the Kerry-led talks.